Message from
Robert S. Graziano, President/CEO
Technology Service Corporation had outstanding performance in Fiscal 2012. Both sales and operating profit hit new all time highs with $115M in sales and $8.9M in operating profit. TSC stock, on the strength of these financial results, rose 26.7% to $85.51 per share. These results were achieved during a most difficult year for Defense companies.
One of the factors that contributed to our financial success was the acquisition of Praxis in December of 2011. Since TSC's fiscal year starts on October 1, Praxis was not part of TSC for a full year. The partial year Praxis contribution to TSC sales and profit were $22.5M and $1.3M, respectively. This was a significant contribution to our financial performance.
Our support to the Air Force Research Laboratory Core Process 3 Rapid Reaction team also made a significant contribution to TSC's financial performance. This work, to provide sensor payloads and technical support for Unmanned Aerial Systems, was performed under TSC's largest single contract, resulting in close to $20M in Fiscal 2012 sales. Additionally, we were rewarded with the knowledge that we were directly helping the American effort in Afghanistan.
During Fiscal 2012 there were two significant changes to TSC's Board of Directors. The first was the retirement of Director Dick Briones. Dick served as a Board member with the utmost integrity from his retirement from TSC as an active employee in 2002, until his retirement from the Board in 2012. Dick's knowledge of business and intimate knowledge of TSC allowed him to offer advice from a unique perspective. As a TSC employee, Dick managed both the Washington and California Operations. We "stole" Dick from Raytheon, where he managed all the radar development programs and program managers in their Massachusetts operation. Prior to that, Dick had the great fortune to be my boss for several years at Norden Systems, now part of Northrop Grumman. We shall all miss Dick and wish him the best of luck in all things.
Also in 2012, we welcomed Lieutenant General (Ret.) James M. Link to TSC's Board of Directors. Jim is the former President of Teledyne Brown Engineering and has a wealth of experience as a businessman, and an Ordinance Officer and logistician gained through a long and distinguished 34 year career with the U.S. Army. Lt. General Link held numerous command and staff positions while on active duty. He served as the Deputy Commanding General of the U.S. Army Materiel Command and prior to that was Chief of Staff of the U.S. Army Materiel Command. He also served as Commander, U.S. Army Missile Command, Redstone Arsenal, Alabama (now the Aviation and Missile Command). Lt. General Link is an active member of the Huntsville, Alabama community and serves on many local boards and committees. We welcome Jim Link; an outstanding addition to TSC's Board.
To better help TSC achieve its goal of becoming a $200 million dollar company in the next several years, the time had come to implement needed changes to our organization. TSC has grown by over 80% in the last 5 years, from $63M in revenue in Fiscal 2007 to $115M in Fiscal 2012. An organization focused on local offices and often local customers that served TSC well in the past, needed to be rethought in terms of the larger company that we are rapidly becoming. Our new organization forms more robust business units or Divisions that will help each other grow and view the staff of several offices as a total capability. Each Division is a larger cost center, which will help stabilize rates and employment, and will allow the small Operations to be supported by the personnel and capabilities within the Division. The three new Divisions are Systems Development and Production, System Acquisition and Modernization, and Engineering and Technical Services. The Divisions, each with a somewhat unique business paradigm, consolidate nine separate Operations and subsidiaries. The Divisions form much larger business units, each with greater organic capability, than any previous individual TSC Operation. We have appointed three Division Managers, each with his own business development capability, who interact to address performance, staffing needs, and business growth. It is much more efficient to have three managers interacting than nine. Our Operations and Office Managers will continue to provide local management and business development, but within the sphere of a larger more robust Division. We also believe that creating the Division Manager's position, along with business growth, creates opportunities for advancement for TSC personnel.
As we become a larger company, it is extremely important to improve our processes. We currently are ISO 9001 certified in our Phase IV Operation in Alabama. Capability Maturity Model Integration (CMMI) is a process improvement approach developed by a group of experts from industry, government, and the Software Engineering Institute (SEI) at Carnegie Mellon University. It is the certification often required by the DoD for larger software development projects, in particular, but the CMMI process can be applied to any program. TSC began working toward CMMI certification in Fiscal 2011. In Fiscal 2012, we achieved CMMI-DEV 1.3 Maturity Level 2. In Fiscal 2013, we expect to receive our Level 3 Certification. The Level 2 Certification was achieved on the LifeCycle–ONE program, as certification must be earned through the results and performance on a real development project. Congratulations to the LifeCycle-ONE team on achieving this significant goal for their program and for TSC.
Fiscal 2013 will be a most challenging year. The fiscal cliff and sequestration, if they occur, will have major impacts on military procurement and spending. Sequestration demands a greater than $50B cut in defense related spending. We are already seeing belt tightening by both the government and prime contractors. We are also seeing the usual procurement slowdown that occurs whenever civilian employees become concerned about the military budgets. We can have little impact on what the President and Congress decide to do or not do. What we can do is redouble our efforts to do great work for our customers, aggressively pursue new business, and continue to manage TSC for success.